Paul Phillips was one of the early members of this list. He was not
someone who flooded the list with messages, but what he wrote was always
valuable. His knowledge of the Balkans and the Canadian economy brought
an important dimension to this list. Paul will be missed.
Michael Perelman
When I first subscribed to PEN-L back in 1992, it took me a while to
adjust to the list culture and often had ridiculous flame wars over
slights real and imagined. I always remember how calm, civil and wise
Paul was during the most turbulent occasions, involving hotheads such
as myself and some others just as bad. Whenever I came back to PEN-L
after a cooling off period, it was motivated in part by the presence
of Paul Phillips. Here's a post of his from March of this year.
Considering the state of the world, his contributions will surely be missed.
---
Tom is quite right to challenge the prevailing view that we are not
already witnessing many of the manifestations of depression that were
the hallmark of the depression of the 1930s. (By the way, I wonder
why no one has mentioned the 'great depression' in Britain after the
financial crash in 1873 until circa 1896?) Still, that is not my
point. We will not relive the depression of the 1930s for a number of
reasons that have been mentioned on this list. But, equally, we will
not relive the recovery of the '40s, '50 and '60s. The whole
discussion of Fed and US gov't policy that I see in the financial
press and on the media and even see on this list seems to me to be an
Alice in Wonderland dreamscape because it assumes that once we settle
the subprime debt problem and get the housing market back on course
and get consumers buying (on the cuff) again, the economy can resume
its upward and onward course without major deviations from the path
of the last half-century. Nothing could be more delusionary because
it ignores several immutable facts:
global warming, peak oil, peak water, peak food (and other
commodities), overpopulation, deforestation, etc. etc.
Let me be more explicit. The 1930s were, as Keynes clearly pointed
out, a period of insufficient demand, and indeed the whole canon of
Keynesian thought pushed for supplementing aggregate demand with
government expenditures, tax cuts, investment incentives,
redistributive transfers anything to increase C + I + G + (X-M) in
the classic Keynesian formulation. But fundamental to this
prescription was the underlying understanding of insufficient
aggregate demand relative to excess aggregate supply. Many Marxists,
including our Jim, attribute it, at least in part, to an
'underconsuption undertow' resulting from an increasingly unequal
income distribution which robbed the working class of the ability to
consume. One should also, of course, mention the collapse of
international demand that resulted when Germany's access to borrowed
funds to pay Britain and France its war reparations were cut off.
Certainly, in Canada's case, it was the collapse of export markets
for our commodities, in particular, grains, which triggered the depression.
The 2nd World War 'solved' the problem for North America by creating
excessive aggregate demand ('military Keynesianism') but, what is
readily apparent, is that this massive increase in aggregate demand
(gov't expenditures approaching 50% of GNP) was relatively easily met
with existing resources and capital stocks. That is, there was
massive excess capacity in both capital and in commodity resources.
There was some rationing and inflationary pressure but, in general,
macroeconomic balance was maintained and, when the war was over,
capacity was switched to consumer products and to capital goods to
restock Europe --with relative ease. Productivity increase prompted
by the war, unions and the 'labour-management accord' meant that for
the majority industrial workers, income increases were sufficient to
absorb the increased output of US industry and to the extent it was
not, the government expenditure on the military for the 'cold war'
sufficed. Hence the 'golden age', otherwise known as 'mass-production
for mass-consumption.'
However, this was coming to an end in the late 1960s. Though much of
the analysis of this period stressed the re-emergence of excess
capacity or, the other side of the coin, falling profits, little
attention has since been paid to another phenomena that caused
considerable comment among post-Keynesian economists at the time, the
secular rise in real commodity prices. Though the increase was fairly
widespread, it was the rapid jump in oil prices in 1973-4 accredited
to OPEC that caught the attention of most. Over the next half decade
or so the battle between capital and labour over who was to absorb
the cost of oil rents paid to the mid-east oil barons resulted in
inflation which again accelerated in 1978 with the second oil shock.
This necessitated, from capital's point of view, the destruction of
labour's countervailing power and the virtual destruction of the
labour movement, at least in the capitalist surplus value sector.
This was accomplished by monetarism and the severe recession of the
early 1980s. It is no coincidence or accident that real wages have
remained stagnant (or declined for the lower waged and minimum waged
workers) since the mid-1970s. Family wages have increased marginally
entirely due to increased female participation and longer hours
worked by both men and women which allowed consumption to increase
even as income distribution became more and more unequal.
The '70s seem to me to be a kind of pivotal decade in the post-war
period. As mentioned real commodity prices began to rise even before
the OPEC oil crises, real wages peaked and began falling, Bretton
Woods was abandoned, the unions entered a secular decline in the face
of a monetarist-neoliberal response to stagflation. At the same time
Ehrlich published his "Population Bomb" (1968) and the Club of Rome,
"The Limits of Growth" (1972) which highlighted for the first time
since Malthus the physical resource limits to economic expansion and
population growth. Malthus' prediction was countered by colonial
expansion opening up the food resources of the new world. Ehrlich's
and the Meadow's projections were countered by North Sea and other
non-OPEC oil discoveries, the 'green revolution' in agriculture (made
possible by the expansion of fossil fuel availability) and a renewed
expansion of mineral discovery and development. This made possible
the demand-led recoveries from the '81-'83, '91-'94, and 2001-'02
recessions based on easy credit and monetary expansion and
ridiculously low prices for oil.
These conditions have changed since 2002. Oil and commodities are no
longer in elastic supply (ie real commodity prices are rising along
with resource rents redistributing income from resource poor
countries which now includes the United States to resource rich
countries and regions) and the 'green revolution' is failing, in part
due to global warming, a growing shortage of water, soil degradation,
rising resistance to pesticides, herbicides, and the rising cost of
fossil fuel based fertilizer.
This implies that we can not expect a Keynesian 'demand side'
solution to the current slump/crisis nor that we can 'grow' (invest,
consume) our way out of a recession-depression. It also suggests that
any longer term solution must involve both a declining population and
a major redistribution of (a declining) GDP, as well, of course, of a
major change in our 'style' of living necessary to offset the
increase and impacts of global warming, never mind of peak oil.
Any short term 'fix' of credit and consumption expansion will
immediately run up against rising real energy (and food) costs,
inflation, rising emissions (and hence climate change) and, even in
the short run, increased shortages of water (it takes thousands of
litres of water to produce one litre of ethanol; 3 to 6 barrels of
water to produce one barrel of synthetic crude, etc.)
In view of these realities, I think we have to look at a quite
different family of policies to get us out of the current recession.
What is perhaps the most disheartening is that in the current
presidential primary debates, one hears next to nothing from Clinbama
indicating even an awareness of the problem. (This is not to say that
in Canada there is any greater awareness. The Harper conservative
government has its head firmly buried in the sand with its backside
facing south.)
Paul Phillips
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